Market Alert - The Close

Fire and fury? Perhaps for SP400 and RUTX, but for the large caps, again they mostly shrugged it off, coming back from gaps lower.

SP500 -0.90, -0.04%
NASDAQ -18.13, -0.28%
DJ30 -36.64, -0.17%
SP400 -0.69%
RUTX -0.94%
SOX -0.30%

VOLUME: NYSE +5%, NASDAQ +5%. NYSE trade moved up but was still below average. You could read that as buying the dip but for the bombs lower in SP400 and RUTX. NASDAQ traded moved back up to average as NASDAQ recovered lost ground but still lost ground. Problematic trade.

ADVANCE/DECLINE: NYSE -2.3:1, NASDAQ -2.5:1. Rather serious downside breadth but not blowout even with RUTX losing almost 1%.

The official story from the market soothsayers is that the 'fire and fury' comment was not an official White House position as first thought, but instead a Trumpism, stated on off the cuff and on the fly. As such it could be brushed off as Trump just being Trump. That is Trump, in terms of the Art of the Deal, not necessarily as the thoughtless, thin-skinned person he is made out to be. Not to say he is not thin-skinned, but it plays so well into his Art of the Deal methodology that many pundits forget that it is part of his MO in 'negotiating' a final outcome.

In any event, with Tillerson stating nothing was imminent and North Korea actually releasing a Canadian prisoner, investors more or less stepped back from the precipice. AAPL rebounded to close positive, FB rallied off its gap lower to close flat. NVDA reversed to positive as a good market leader should. China stocks were excellent again; BIDU, YY, BZUN, HTHT, NTES posted very solid upside gains. It would appear that buy the dip is still in vogue, at least for the large caps -- and a few others.

Not for the small and midcaps. RUTX dove lower from the big tombstone doji below the 50 day MA after that bear flag. IWM gapped so much we did not chase it after the open, though perhaps we should have. SP400 gapped sharply as well, also falling away from a test of the breach of the 50 day MA's. It held some support on the low and bounced, but the pattern is not good.

Even for the large caps it was not a full recovery, but those indices held the same support. NASDAQ held its 2 week range and the June peak. SP500 bounced back above the 20 day EMA and held its range. SOX held the 50 day EMA on a gap lower, rebounding to close over the 50 day SMA. DJ30, well, it simply tested the 10 day EMA on the low. All held support and from that perspective are fine. It was not a complete reversal, so the 'black swan' taking down the market worry is not completely disposed of. It was, however, heavily discounted given the recovery.

We picked up some BIDU and BCOR. The latter is hardly a large cap, but internet stocks are performing rather well of late, and its pattern is solid as is the break. Took some excellent gain on YY ahead of tomorrow's earnings and WUBA as well. Hmm. Both Chinese stocks involved with the internet.

Heading into Thursday, the market still has issues. Again, the rebound was not perfect. There is still solid leadership but the index patterns were rattled. The Fed will of course remain in the market's corner -- it has to be given its policies. The plunge protection team is also there to help for the same reasons.

The key, as always, is whether the algorithms that run much of the heavy volume trading still buy the dips versus sell the rallies. Wednesday they did just enough to hold the large cap indices. The small and midcaps are thrown to the wolves it would seem. A bifurcation is never a good thing for upside, and any dichotomy will ultimately be resolved. That those smaller indices are breaking violently lower is not a good economic indication, and it would seem logical that ultimately a declining economy would lead to declines in ALL indices. But then again, there is the Fed and the PPT. And the algos. The latter is ultimately the swing vote.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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